RE: JOHN CRAIG DUNN NOTICE OF HEARING IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20

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1 IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA RE: JOHN CRAIG DUNN NOTICE OF HEARING NOTICE is hereby given that a hearing will be held before the Ontario District Council ( the District Council ) of the Investment Dealers Association of Canada ( the Association ), on the 28th day of April 2004, at 121 King Street West, Suite 1600, Toronto, Ontario, at 9:00 AM., or so soon thereafter as the hearing can be held, regarding a disciplinary action brought by the Association concerning John Craig Dunn ( Dunn or the Respondent ). NOTICE is further given that the staff of the Association allege the following violations of the By-laws, Regulations or Policies of the Association: I. Between May 1993 and January 16, 1994, Dunn, while employed as a Branch Manager of a Member of the Association, allowed a non-registered person, namely Anthony Addolorato Colalillo, to act in furtherance of trades, and thereby engaged in business conduct or practice unbecoming a registrant or contrary to the public interest, contrary to By-law II. III. IV. Between October 1995 and May 1997 inclusive, Dunn, while employed as a Branch Manager of a Member of the Association, failed to supervise the client accounts of J.S., contrary to By-law 29.1, Regulation , and Policy 2. Between August 1993 and May 1997 inclusive, Dunn, while employed as a Branch Manager of a Member of the Association, failed to supervise the client accounts of Mr. and Mrs. A.T., contrary to By-law 29.1, Regulation , and Policy 2. Between November 1995 and May 1997 inclusive, Dunn, while a Registered Representative of a Member of the Association, failed to use due diligence to ensure that the recommendations made for the client account of U.E. Limited were appropriate for the client and in keeping with the client s investment objectives, contrary to Regulation (c). V. Between January 1995 and May 1997 inclusive, Dunn, while a Registered Representative of a Member of the Association, failed to provide the Clients J.S., A.T., R.S., U.E. Limited, and B.W. with objective or unbiased information regarding their investments in Tee-Comm Electronics Inc., and thereby engaged in business conduct or practice unbecoming a registrant or contrary to the public interest, contrary to By-law PARTICULARS NOTICE is further given that the following is a summary of the facts alleged and intended to be relied upon and the conclusions drawn by the Association at the said hearing:

2 - 2 - BACKGROUND 1. Dunn was employed at the Mississauga branch office of BMO Nesbitt Burns Inc. (and its predecessor Nesbitt Thompson) from June 1989 to August 27 th, 2002 as the Branch Manager. Dunn had been registered in the industry since At the material time, Dunn was registered with the Association as a Vice-President (trading in Securities and Securities Options, Commodities and Commodities Options) and a Futures Contract Supervisor. 2. Anthony Addolorato Colalillo ( Colalillo ) was employed at the Mississauga branch office of BMO Nesbitt Burns Inc. from May 1993 to August 28, 1997, at which time the Respondent resigned from Nesbitt. Colalillo was first approved as a Registered Representative effective January 17, 1994 and as a Registered Representative Options on January 16, Tee-Comm Electronics Inc. ( Tee-Comm ), based in Milton, Ontario, manufactured and distributed home satellite systems through international network of distributors and dealers. Tee-Comm reported operating revenue from 1990 to Tee-Comm stock was listed on the Toronto Stock Exchange ( TSE ). 4. Between January 1996 and May 1997, Tee- Comm common shares were high risk, aggressive growth securities, in that during that period, the company had a negative cash flow, negative earnings, and faced overwhelming competition in its market sector. 5. Nesbitt s Research Department initiated coverage of Tee-Comm in March Nesbitt s Research Department never gave Tee-Comm an above average rating, and from January 1996 onwards, gave it least recommended rating, advising investors to reduce their positions. 6. In June 1996, Tee-Comm completed a $107 million issue of convertible debentures through Scotia McLeod. However, in May 1997, the Bank of Montreal demanded repayment of its debt owed under its line of credit with Tee-Comm, and an interim receiver was appointed. Soon thereafter, the shares in Tee-Comm became worthless. Tee-Comm was subsequently suspended from the TSE and the Ontario Securities Commission issued a Cease Trade Order on May 27, Colalillo s activities while unregistered 7. On May 19 th, 1993, A.T. and his wife A.T. opened joint accounts at Nesbitt s Mississauga branch office. On August 19 th, 1993, Mr. A.T. opened his own personal margin account. Colalillo solicited the opening of all of the A.T.s accounts with Nesbitt. 8. Dunn signed the NAAFs for the joint account, as at the time Colalillo was not registered with the Association.

3 Between the time that the A.T.s accounts were opened to the time Colalillo was registered with the Association as a Registered Representative, Colalillo prepared the NAAFs, solicited transactions, took client orders and prepared trade tickets for the accounts. 10. Dunn had little or no involvement in the actual management of the accounts and did not personally meet with Mr. or Mrs. A.T. to discuss their investment objectives or their risk tolerances. 11. On July 7 th, 1993, J.S. opened a margin account and two RRSP accounts at Nesbitt s Mississauga branch office. J.S. was a friend of Colalillo. Colalillo solicited the accounts. 12. Dunn signed the New Account Application Forms (NAAFs) opening the accounts, as Colalillo was not registered with the Association at the time. 13. Between the time that J.S. s accounts were opened to the time Colalillo was registered with the Association as a Registered Representative, Colalillo solicited transactions, took client orders and prepared the trade tickets. 14. Dunn had little or no involvement in the actual management of the accounts and did not personally meet with J.S. or discuss his investment objectives or risk tolerance. Supervision of the Accounts of J.S. 15. When J.S. opened his accounts with Nesbitt in July 1993, the NAAFs indicated that J.S. was 34 years of age, self-employed, and had a net income of between $20,000 and $40,000. J.S. s net worth was stated as being under $25,000. The NAAFs also indicated that J.S. had extensive investment experience, even though J.S. s only previous investment experience was in real estate and not in securities. 16. The NAAFs stated that J.S. s investment objectives were: Account Preservation Income Moderate Growth Aggressive RRSPs 0% 50% 50% 0% Margin Account 25% 25% 25% 25% 17. After opening J.S. s margin account, Colalillo solicited the purchase of shares in speculative and growth mining and technology companies, most notably First Miss Gold Inc., Chesbar Resources Inc. and Tee-Comm. The following is a summary of the transactions in J.S. s margin account: Date Quantity Quantity Description Price Amount Amount Cash

4 - 4 - Bought Sold Bought Sold Withdrawal /Cash Deposit Oct 4/95 10,000 Chesbar Resources Inc. $0.68 $6, Oct 17/95 Deposit $6, Oct 17/95 2,000 First Miss Gold Inc. $22.00 (U.S.) $59, Nov 1/95 Deposit $30,000 Nov 3/95 Deposit $6,000 Jan 9/96 Cheque issued <$9,000> Mar 6/96 1,000 Tee-Comm $ $16, Apr 9/96 5,000 Chesbar Resources Inc. $ $6, Apr 19/96 Cheque issued <$2,000> Apr 23/96 2,000 First Miss Gold inc. $29.00 (U.S.) $77, Apr 23/96 5,000 Tee-Comm $12.00 $60, Apr 25/96 5,000 Chesbar $1.25 $6, Resources Inc. Jun 17/96 10,000 Diamond Lake Minerals Inc. $0.15 $2, Aug 2/96 1,500 Tee-Comm $10.45 $15, Nov 29/96 1,500 Tee-Comm $8.80 $13, Apr 9/97 Deposit $22,000 Sept 24/97 6,000 Tee-Comm (in receivership) $0 $0 18. Of the approximately $43,000 deposited to the J.S. account between October 1995 and November 1995, $30,000 was borrowed from the Bank of Montreal. At all material times, the account was highly leveraged, thereby increasing the risk associated with the investments in the account. 19. In April 1996, J.S. received a margin call. As a result, Colalillo solicited the sale of 2,000 First Miss shares. However, recognizing that Tee-Comm had a higher margin rate (70%) than First Miss (50%), Colalillo immediately solicited the purchase of an additional 5,000 shares of Tee-Comm by J.S. 20. In 1996, Nesbitt decreased the maximum loan rate for Tee-Comm from 70% to 50%. Soon thereafter, J.S. received another margin call. Therefore, J.S. authorized Colalillo to sell 1,500 Tee-Comm shares on August 2, In November 1996, Colalillo solicited the purchase of 1,500 shares of Tee-Comm back into the J.S. margin account. 21. At no time between October 1995 and August 1997 did the J.S. margin account hold any securities that met the capital preservation or income objectives of the client. Furthermore, between April 1996 and December 1996, the J.S. margin account was

5 - 5 - entirely concentrated in aggressive, high-risk securities, and between December 1996 and August 1997, was primarily concentrated in holdings in Tee-Comm. 22. Between April 30, 1996 and April 30, 1997, Tee-Comm amounted to over 100% of the net equity of the J.S. margin account. Further, between December 31, 1996 and April 30, 1997, the debit balance in the account exceeded: (a) the maximum loan value of the account, causing the account to be under margined; and (b) the client s net worth and annual income as indicated on the original NAAF. 23. From October 31, 1995 to June 30, 1997, the J.S. margin account had a loss of $57,017.00, including $4,169 in interest paid and $2,808 in commissions. 24. Dunn was responsible for the daily supervision of the branch office where Colalillo was a registered representative. 25. Dunn received daily commission runs, which showed all the previous day s trades for each registered representative in the branch. 26. Dunn did not document any of his reviews of daily commission runs in any manner. 27. As set out above, several transactions completed by Colalillo in the J.S. accounts were outside the stated investment objectives for accounts and should have been (but were not) questioned by Dunn during the course of his daily reviews. 28. Dunn was also responsible for the monthly supervision in the branch and received monthly account statements from Nesbitt head office, which identified periods when commissions of $1,000 or more had been generated in any given account. 29. The commission in J.S. s margin account exceeded the $1,000 threshold on one occasion April J.S. s April 1996 account statement shows holdings valued at $83,800, a debit cash position of $35,785 and a net equity of $51, A review of J.S. s margin account would have determined that the trades completed in April 1996 were a sale and repurchase of 5,000 Chesbar shares, a sale of 2,000 First Miss Gold Inc. and purchase 5,000 shares Tee-Comm. A review of the account would have also revealed that the client had taken out a loan in the amount of $30,000 as equity for the account. This information alone should have provoked an inquiry and a review of the client s NAAF. A review of the NAAF would have determined that the management of the account was inappropriate based on the client s investment objectives and the client s net worth and income. 31. Dunn did not document whether he had any discussions with Colalillo in respect of the J.S. account and at no time did Dunn contact J.S. to discuss the trading in his margin account or possible changes to his investment objectives.

6 - 6 - Supervision of the Accounts of Mr. and Mrs. A.T. 32. When Mr. and Mrs. A.T. opened their accounts with Nesbitt, the NAAFs indicated that Mr. A.T. was 50 years old and his wife was 41 years old. At the time, Mr. A.T. was employed by the Province of Ontario as a financial consultant and had extensive investment experience. Their net income was between $60,000 and $100,000 and together had a net worth of between $100,000 and $250, The NAAFs set out the same investment objectives for all of their accounts as 10% preservation of capital, 10% income, 40% moderate growth and 40% aggressive trading. 34. Despite these stated investment objectives, between August 1993 and June 1997, the A.T. accounts did not hold any securities that met the preservation, income or moderate growth objectives. 35. Rather, between October 1993 and April 1997, Colalillo solicited the following transactions involving Tee-Comm securities: A.T. Margin Account Date Activity Quantity Price Value Oct 21, 1993 Purchase 1,000 shares $4.20 $4,306 Nov 4, 1993 Purchase 1,000 shares $4.00 $4,000 Sept 8, 1994 Purchase 3,000 shares $ $9,988 Aug 9, 1996 Sell 2,000 shares $10.80 $21,600 Aug 12, 1996 Sell 3,000 shares $10.56 $31,280 Apr 23, 1997 Purchase 3,200 shares $ $9,540 A.T. Joint Account Date Activity Quantity Price Value Nov 4, 1993 Purchase 1,000 shares $4.00 $4,000 May 26, 1994 Purchase 2,000 shares $3.85 $7,775 Aug Purchase 2,000 shares $3.15 $6,523 Jul 31, 1996 Transfer In 1,350 shares Fair market value $13,702 Jul 31, 1996 Transfer In 6,000 shares Fair market value $60,900 Aug 13, 1996 Sell 5,000 shares $ $52,624 Aug 22, 1996 Purchase 100,000 CSD $ $104, From February 1995 to June 1996, Tee-Comm ranged from 49 to 90 % of the net equity value of the A.T. joint account and at over 50% of net equity value of the A.T. margin account. Consequently, during this time period, the joint account and the A.T. margin account was concentrated in Tee-Comm and did not conform to the clients stated investment objectives.

7 From the time the joint and margin accounts were opened, to June 1998, Mr. and Mrs. A.T. lost approximately $186,000 in the joint account, but had a profit of approximately $75,000 in the A.T. margin account, for a total net loss $111, Dunn was responsible for the daily supervision of the branch office where Colalillo was the registered representative. As noted above, between August 1993 and June 1997, the accounts of Mr. and Mrs. A.T. did not hold any securities that met the preservation, income or moderate growth objectives as set out in the NAAFs. Dunn questioned none of the Tee-Comm transactions in the accounts of Mr. and Mrs. A.T. during the course of his daily reviews. 39. As noted above, Dunn was also responsible for the monthly supervision in the branch. 40. A second joint account shared by Mr. and Mrs. A.T. was opened in March This account was used to buy and sell securities in U.S. dollars. 41. The U.S. dollar joint account exceeded the $1,000 commission threshold in March That month, commissions charged amounted to $1,162. This was the month the account was opened and securities purchased caused the account to have equity of $48,000 and a $90,000 debit position. 42. In January 1995, the commissions in the U.S. dollar account amounted to $1,104. The account equity was $15,597, with a debit position of $222,000, and interest due in the amount of $1,654 (more than 10% of the equity value of the account). 43. In May 1995, the U.S. dollar account attracted commissions in the amount of $1,063. The account had an equity value of $27,000, a $152,000 debit position and paid $1,308 in interest. 44. Despite the U.S. dollar account being highly leveraged at most times, Dunn at no time contacted Mr. or Mrs. A.T. to discuss the trading in the account and did not document his monthly reviews of the account in any way. 45. In February 1997, Mr. A.T. s margin account attracted commissions in the amount of $1,137. The account sold and purchased securities of a growth nature, leaving it with a small debit balance. 46. In May 1996, commissions charged to Mr. A.T. s margin account totaled $1,372. The account had equity of $69,317, with shares in Tee-Comm amounting to 88% of the equity and 44% of the market value of the account. The account had a debit position equal to the equity value of the account. Securities purchased and sold were of a growth nature. 47. Furthermore, the A.T. margin account was subject to numerous margin calls during the last six months of No corrective action was taken by Dunn to remedy the situation.

8 In late July 1996, Colalillo approached A.T. and asked him to participate in a transaction that would involve the transfer of shares from two other clients of Colalillo, both of whom were U.S. residents. Colalillo explained that the U.S. clients had wanted to sell their shares in Tee-Comm and asked A.T. to facilitate the transfer. 49. To this end, Colalillo solicited the sale in the open market of the Tee-Comm shares in the A.T. joint account, as well as shares in BCE, Telefonos Mexico and a small position in Chesbar Resources Inc. The cash from these transactions was then transferred to the accounts of Colalillo s other two clients. In exchange, the A.T. joint account received 7,350 shares of Tee-Comm and 18,403 shares of Chesbar Resources Inc. 50. These transactions effected the value of the A.T. joint account negatively in that: (a) although Colalillo had represented to Mr. A.T. that these transactions would result in a wash, A.T. paid $107,442 for securities that had an actual fair market value of $93,926 a difference of $13,516; and (b) the transactions resulted in Mr. and Mrs. A.T. assuming an increased exposure to Tee-Comm and Chesbar in the joint account, which decreased the quality of the account and increased the exposure of the account to Tee-Comm. Consequently, the transactions were not in the best interests of A.T. and his wife. 51. The Nesbitt Policy Manual in effect at the material time indicated that a letter of authorization was required from clients to permit the transfer of securities between unrelated accounts. A.T. was not asked by Colalillo to sign such a letter, and in fact, no such letter exists. 52. Dunn did not document any review of the transfer between the accounts of the U.S. residents and the A.T. joint account 53. A review of the transfer of shares between the unrelated accounts would have determined that at the end of July 1996, the combined A.T. joint accounts held $123,887 in equity, a debit balance of $251,000, and that interest in the amount of $1,300 was paid. A review would also have indicated that shares in Tee-Comm represented 101% of the equity value of the accounts. 54. In fact, at no time did Dunn contact Mr. or Mrs. A.T. to discuss the trading in their accounts, the use of margin, or possible changes to their documented investment objectives to better reflect the holdings in their accounts U.E. Limited 55. U.E. Limited ( the Corporation ) was a company incorporated pursuant to the laws of Ontario. On October 20 th, 1995, the Corporation opened a margin account at Nesbitt s Mississauga branch office.

9 The NAAF dated October 20 th, 1995 indicated investment objectives for the Corporation of 50% moderate growth and 50% aggressive trading, with a risk tolerance of some (on a scale of low, some and high ). The NAAF also indicated income as $200,000 annually, and the net worth of the corporation being $1,500,000. Dunn signed and approved the NAAF opening the account 57. From November 1995 to May 1997 the Corporation s margin account held only Tee- Comm related securities. Dunn solicited all of the Tee-Comm transactions. 58. The corporation s margin account was highly leveraged, in that the use of margin (a debit cash/account value) ranged from 37% to 292% from November 1995 to May Between November 1995 and May 1997, the account lost $452, Dunn managed the Corporation s margin account and conducted transactions that caused the account to become a high risk account with large debit balances, resulting in the account not conforming to the corporation s stated investment objectives, and hence were unsuitable. Failure to provide objective or unbiased information to clients 61. From January 1995 to April 1997, Dunn or Colalillo solicited the purchase of Tee-Comm securities into the accounts of J.S., A.T., R.S., U.E. Limited, and B.W. ( the Clients ) in the form of common shares, convertible debentures or warrants. In all cases, the client accounts became concentrated in Tee-Comm. 62. During this period, a number of investment houses and analysts recommended Tee- Comm stock as a speculative buy for non-risk adverse accounts. However, Nesbitt s own research department never gave Tee-Comm an above average rating, and in January 1996 recommended that its clients reduce their positions in Tee-Comm. From January 23, 1996 to April 24 th, 1997 when Nesbitt discontinued its coverage of the stock, its analysts gave it its least recommended rating. 63. While Dunn provided the Clients with positive information regarding Tee-Comm, Dunn never informed the Clients of the risks inherent in investing in Tee-Comm. 64. In particular, Dunn did not advise the Clients that in January 1996 and onwards Tee- Comm had incurred (and was continuing to incur) financial losses and that it was expected to continue to have negative cash flow. 65. None of the Clients were provided with the negative research reports authored by Nesbitt Research Department and others.

10 Rather, when certain Clients brought negative or unfavourable research reports or negative or unfavourable media reports regarding the prospects of Tee-Comm to Dunn, he either denigrated the abilities and knowledge of the authors of the research or media reports or stated that the authors did not have access to certain information, unlike Dunn who was close to members of Tee-Comm s senior management. 67. The Clients were variously advised by Dunn that: (a) Tee-Comm was not a risky or speculative investment; (b) Tee-Comm would not fail; (c) Tee-Comm had strong financial backing; (d) the Clients investments in Tee-Comm were secure; (e) Tee-Comm was going to be bought out or merged with another company; (f) as Tee-Comm s stock price declined, the Clients should not sell their stock, but rather hold and/or purchase more stock; and (g) the payment of interest and/or the re-payment of the principal from the Tee- Comm debentures were guaranteed. 68. Dunn represented to the Clients that he was in frequent contact with members of senior Tee-Comm management and that he was provided with certain information by Tee- Comm personnel that had not been made available to the general public. 69. Dunn remained positive about the prospects of Tee-Comm and ignored the company s shortcomings until the Bank of Montreal had demanded repayment of Tee-Comm s line of credit debt and the company s stock had ceased trading. 70. Dunn could not provide unbiased investment advice to the Clients given that: (a) Dunn received finance fees from Nesbitt for bringing Nesbitt and Tee- Comm together of the purpose of equity financings; (b) Dunn had business and personal relationships with the President and CEO of Tee-Comm. In particular, the President and CEO of Tee-Comm had personal client accounts with Dunn; (c) On at least two occasions, Tee-Comm paid Dunn s airfare to attend satellite television trade shows in Las Vegas; and (d) Dunn held considerable positions in Tee-Comm securities in his own personal accounts NOTICE is further given that the Respondent shall be entitled to appear and be heard and be accompanied by counsel or agent at the hearing and to call, examine and cross-examine witnesses. NOTICE is further given that Association By-laws provide that if, in the opinion of the District Council, the Respondent has failed to comply with or carry out the provisions of any applicable federal or provincial statute relating to trading or advising in respect of securities or commodities or of any regulation or policy made pursuant thereto; has failed to comply with or carry out the

11 provisions of any By-law, Regulation, Ruling or Policy of the Association; has engaged in any business conduct or practice which such District Council in its discretion considers unbecoming or not in the public interest; or is otherwise not qualified whether by integrity, solvency, training or experience, the District Council has the power to impose any one or more of the following penalties: (a) (b) (c) (d) (e) (f) a reprimand; a fine not exceeding the greater of: (i) $1,000, per offence; and (ii) an amount equal to three times the pecuniary benefit which accrued to such person as a result of committing the violation; suspension of approval of the person for such specific period and upon such terms as such District Council may determine; revocation of approval of such person; prohibition of approval of the person in any capacity for any period of time; such conditions of approval or continued approval as may be considered appropriate by the District Council. NOTICE is further given that the District Council may, in its discretion, require that the Respondent pay the whole or part of the costs of the proceedings before the District Council and any investigation relating thereto. NOTICE is further given that the District Council may accept as having been proven any facts alleged or conclusions drawn by the Association in the Notice of Hearing and Particulars that are not specifically denied, with a summary of the facts alleged and conclusions drawn based on those alleged facts, in a Reply. NOTICE is further given that the Respondent has ten (10) days from the date on which this Notice of Hearing and Particulars is served, to serve a Reply upon: Investment Dealers Association of Canada Suite King St. West Toronto, Ontario M5H 3T9 Attention: Kenneth J. Kelertas, Enforcement Counsel A Reply may either:

12 (i) (ii) specifically deny (with a summary of the facts alleged and intended to be relied upon by the Respondents, and the conclusions drawn by the Respondent based on all the alleged facts) any or all of the facts alleged or the conclusions drawn by the Association in the Notice of Hearing and Particulars; or admit the facts alleged and conclusions drawn by the Association in the Notice of Hearing and Particulars and plead circumstances in mitigation of any penalty to be assessed. NOTICE is further given that if the Respondent fails to serve a Reply or attend at the hearing, notwithstanding that a Reply may have been served, the District Council may proceed with the hearing of the matter on the date and at the time and place set out in this notice, or on any subsequent date, at any time and place, without further notice to and in the absence of the Respondents, and the District Council may accept the facts alleged or the conclusions drawn by the Association in this notice as having been proven and may impose any of the penalties prescribed by the By-laws of the Association. DATED at Toronto, this day of March Aleksander Popovic Vice-President, Enforcement Department INVESTMENT DEALERS ASSOCIATION OF CANADA 121 King St. West, Suite 1600 Toronto, Ontairo M5H 3T9